Even though India’s economic recovery accelerated in Q2FY21 from the lows of the pandemic-induced lockdown, the country for the very first time since Independence entered into a technical recession.
The National Statistical Office (NSO) data on Friday showed that the Q2FY21 GDP on a year-on-year basis contracted by (-) 7.5 per cent from (-) 23.9 per cent in the preceding quarter.
Though not comparable, the GDP had grown by 4.4 per cent in the corresponding quarter of FY2019-20.
In financial parlance, an economy is said to have entered a technical recession after it consistently remains in the negative output territory for two subsequent quarters.
This trend underscores the reduction in purchasing power along with lower tax collection for the government, likely defaults on debt and falling Capex spends.
According to the NSO, the GDP at ‘Constant (2011-12) Prices’ in Q2FY21 is estimated at Rs 33.14 lakh crore as against Rs 35.84 lakh crore in Q2FY20, showing a contraction of 7.5 per cent as compared to 4.4 per cent growth in Q2FY21.
“Quarterly ‘GVA at Basic Prices at Constant (2011-12) Prices’ for Q2 of 2020-21 is estimated at Rs 30.49 lakh crore, as against Rs 32.78 lakh crore in Q2 of 2019-20, showing a contraction of 7 per cent,” the NSO said in the estimates of Q2FY21 GDP.
“With a view to contain the spread of the Covid-19 pandemic, restrictions were imposed on the economic activities not deemed essential during Q1. Though the restrictions have been gradually lifted, there has been an impact on the economic activities,” it added.
In a sudden turn of events, some hours before the amalgamation of the Lakshmi Vilas Bank (LVB) with DBS Bank India Ltd is to take effect, the Reserve Bank of India (RBI) gave a Rs 318.20 crore relief to DBS Bank.
The RBI wrote ti LVB’s Administrator on Thursday to write down Rs 318.20 crore worth of Unsecured Non-convertible Redeemable Fully Paid-up Basel III compliant Tier-2 Bonds before the scheme of amalgamation comes into effect on November 27.
The LVB had raised the money through Basel III Tier 2 bonds in three tranches.
The RBI cited the Information Memorandums of respective Basel III Tier 2 bonds issued by the LVB while communicating its decision to the LVB.
“If the relevant authorities decide to reconstitute the Bank or amalgamate the Bank with any other bank under Section 45 of the BR Act (Banking Regulation Act), such a bank shall be deemed as non-viable or approaching non-viability and both the pre-specified trigger and the trigger at the point of non-viability for write-down of the Bonds shall be activated. Accordingly, the Bonds shall be written-off before amalgamation/reconstitution in accordance with applicable rules,” the RBI told T.N. Manoharan, Administrator of the LVB.
According to the RBI, as Section 45 of the Banking Regulation Act has been invoked and the amalgamation scheme has been notified, the LVB is deemed to be non-viable or approaching non-viability and accordingly, the triggers for a write-down of Basel III Tier 2 bonds issued by the bank has been triggered.
“In light of the above provisions, such Basel III Tier 2 bonds would need to be fully written down before the amalgamation of the bank comes into effect,” RBI said in its letter.
The Central Government, in its notification, had written off the entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of the transferor bank and the delisting of the shares and debentures.
As a result, the shareholders of the LVB will not get anything for their shares.
Meanwhile, the shareholders of the 94-year-old Lakshmi Vilas Bank (LVB) have started knocking the doors of justice for a fair valuation of their bank, the amalgamation of which takes effect from Friday onwards.
On Thursday, Indiabulls Housing Finance Ltd, Kare Electronics and Development Pvt Ltd and others filed a writ petition in the Bombay High Court praying for a stay of the notification issued by the Central government for amalgamating the LVB with DBS Bank India Ltd, a subsidiary of DBS Bank, Singapore.
The petitioners will also make DBS Bank as a party to the case by amending their petition.
“The petitioners had prayed for a stay of the Central Government notified scheme of amalgamation of LVB with DBS Bank India. The other prayer is to quash the writing off of the entire entire amount of the paid-up share capital and reserves and surplus, including the balances in the shares or securities premium account of the transferor bank and the delisting of the shares and debentures,” Paras Parekh, Partner, Parinam Law Associates representing Indiabulls Housing, told IANS from Mumbai.
The Bombay High Court, admitting the writ petition, refused to stay the Central government’s notification amalgamating LVB with DBS Bank India, and fixed the next hearing for December 14.
The court said: “We are of the opinion, prima facie, that the petitioner’s claims being a monetary claim, can be considered at the time of disposal of the petitions.”
More than half of the office-goers in India are willing to switch jobs if it meant they could work remotely, said a new survey on Thursday.
There has been a heightened interest in online learning since Covid-19 with 83 per cent of survey participants from India saying they are more interested in online learning/training, according to the research by Cloud software firm Salesforce.
“Amid the global pandemic, companies have been leveraging technology to pivot their businesses at hyperspeed. This new all-digital world poses an opportunity for business leaders to rethink how they not only connect with their customers, but also their employees,” Dulles Krishnan, Area Vice President, Salesforce India, said in a statement.
“By shifting our priorities on our employees, ensuring safety and reskilling for the future, we have the opportunity to use technology to make the future of work a more inclusive and resilient environment.”
This report surveyed 20,000 people across ten countries, including 4,000 people from India, focused on gaining insights about the participants’ perceptions of the future of work from around the world.
Venezuelan Foreign Minister Jorge Arreaza has ratified his country’s formal request to join the Treaty of Amity and Cooperation of the Association of Southeast Asian Nations (ASEAN).
“We want to express what we did at the beginning of the year in writing, the formal request for Venezuela to be part of the ASEAN Treaty of Amity and Cooperation,” Arreaza said during the third day of the virtual ASEAN Conference on Thursday.
He stressed that it would be a very important step for Venezuela “to have a much closer and much more productive relationship with the ASEAN”, Xinhua news agency reported.
From a bilateral perspective, Venezuela already maintains “extraordinary relations” with the 10 members of the Southeast Asian bloc, said Arreaza.
The Foreign Minister said that as soon as pandemic restrictions on international flights are lifted, he plans to visit each of the ASEAN members.
The Treaty of Amity and Cooperation is a peace treaty established by the ASEAN founding members in 1976.
India and China were the first countries outside ASEAN to sign the treaty in 2003.
As of July 2009, sixteen countries outside the bloc had acceded to the treaty.
In July 2009, then US Secretary of State Hillary Clinton signed the treaty.
The European Union announced in 2009 its intention to accede as soon as the treaty would be amended to allow for the accession of non-states and joined accordingly in July 2012.
Chancellor Rishi Sunak said the government was dealing with an “economic emergency”. The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022
Chancellor Rishi Sunak in the Spending Review unveiled measures to shore up Britain’s sagging economy. The chancellor said the country is on “economic emergency” caused by Covid-19.
The chancellor said the Covid fallout on economy has only just begun and it will cause lasting damage to growth and jobs.
The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022. The unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009.
Government borrowing will rise to its highest outside of wartime to deal with the economic impact.
The government’s independent forecaster, the Office for Budget Responsibility (OBR) expects the number of unemployed people to surge to 2.6 million by the middle of next year. However, fewer jobs are expected to be lost than predicted this summer.
UK Aid Cut
The chancellor ignored the plea from five former prime ministers to slash UK’s foreign aid commitment.
“Sticking rigidly to spending 0.7% of GDP on overseas aid is difficult to justify to the British people,” the chancellor said and adding that aid spending would fall to £10bn in in 2020-21. The aid target would be cut to 0.5%, Sunak confirmed, adding he hoped the 0.7% target could be restored when the UK’s finances allowed it.
Foreign Office Minister Lady Sugg resigned after the chancellor announced that he was breaking the manifesto commitment.
Lady Sugg, whose brief includes sustainable development, submitted her resignation to Prime Minister Johnson in protest against the cut.
In her resignation letter, she wrote: “Many in our country face severe challenges as a result of the pandemic and I know the government must make very difficult choices in response. But I believe it is fundamentally wrong to abandon our commitment to spend 0.7% of gross national income on development.
“This promise should be kept in the tough times as well as the good. Given the link between our development spend and the health of our economy, the economic downturn has already led to significant cuts this year and I do not believe we should reduce our support further at a time of unprecedented global crises.”
Public Sector Workers
Mr Sunak confirmed that public sector workers – excluding some NHS staff and those earning less than £24,000 – will have their pay frozen next year. The chancellor said he could not justify an across the board rise when many in the private sector had seen their pay and hours cut in the crisis.
The government has extended its furlough scheme to support jobs and wages until next March. Mr Sunak said the government had already spent £280bn to help support the economy through the coronavirus.
It will spend a further £55bn next year as part of a package of measures to support the recovery. This includes billions of pounds to help people find jobs. However, Mr Sunak said long-term scarring meant the economy would be 3% smaller in 2025 than expected in the March budget.
Lib Dems Slam Sunak
“With the economic uncertainty caused by the pandemic, the Chancellor needed to ensure today that no one is left behind. That was the litmus test, and he has failed,” said Sir Ed Davey, the Leader of the Liberal Democrats.
“Far from a radically new approach to the recovery that tackles deep-seated inequality and builds a new green economy, we have a Government that is failing to support carers, children living in poverty and everyone in need of mental health services.”
“The Chancellor has also made some unforgivable political choices today. He has chosen to continue to ignore people excluded from support and chosen to reject calls to properly extend furlough, leaving too many people facing unemployment. People deserve better.”
Indian economy has exhibited stronger pick up in momentum of recovery than expected, said Reserve Bank of India Governor Shaktikanta Das on Thursday.
Addressing the 4th Annual Day of Foreign Exchange Dealers’ Association of India (FEDAI), he cited that a multi-speed normalisation of activity in Q2FY21, after the country witnessed a sharp contraction in GDP by 23.9 per cent in Q1FY21.
“Even as the growth outlook has improved, downside risks to growth continue due to recent surge in infections in advanced economies and parts of India.
“We need to be watchful about the sustainability of demand after festivals and a possible reassessment of market expectations surrounding the vaccine.”
Besides, he said that monetary policy guidance in October emphasised the need to see through temporary inflation pressures and also maintain the accommodative stance at least during the current financial year and into the next financial year.
“A key source of resilience in recent months has been the comfortable external balance position of India supported by surplus current account balances over two consecutive quarters, resumption of portfolio capital inflows on the back of robust FDI inflows, and sustained build-up of foreign exchange reserves,” he said.
“The Government’s recent policy focus to enhance India’s participation in global value chains, including through production linked incentives for targeted sectors, can leverage on the strong external balance position of India.”
With over Rs 55,000 crore net purchase of equities, foreign institutional investors (FIIs) have turned net buyers for the year 2020.
So far in November, FIIs have made net purchase worth Rs 55,576.84 crore including Rs 24.20 crore on Wednesday, the highest ever in a month.
Buoyed by the fund flow, both Sensex and Nifty have off late been on a record run and hit fresh highs. On Wednesday, the BSE Sensex touched an all-time high of 44,825.37, and the Nifty50 on the National Stock Exchange hit a fresh high of 13,145.85 points.
During January-April, FIIs pulled out a net amount of Rs 89,069.01 crore, with nearly Rs 66,000 crore being pulled out in March due to the initial fears and uncertainties over the pandemic.
However, post the announcement of measures to boost liquidity and provide stimulus globally, including in India, FIIs started coming back in May. Except a blip in September, FIIs have been net buyers since May.
This trend is the likely to continue at least in the near term, according to analysts.
A report by Kotak Institutional Equities showed that the September 2020 quarter witnessed Rs 46,900 crore of buying by foreign portfolio investors (FPI) and FPI holding, including ADR and GDR in the BSE-200 Index increased to $415 billion in the September 2020 quarter from $360 billion at the end of the June 2020 quarter.
“FPI ownership in the BSE-200 Index stood at 23.3 per cent in September 2020. FPIs were net buyers in banks, diversified financials, IT services and oil, gas and consumable fuels’ sectors. DIIs holding in the BSE-200 Index declined to 13.6 per cent in the September quarter from 14 per cent at the end of the June 2020 quarter,” it said.
DIIs, however, sold IT services, oil, gas and consumable fuels and pharmaceuticals sectors.
Currently too, DIIs have been on a selling spree and have been net seller off late, contrary to the investments by foreign investors.
So far in November, DIIs have made a net selling of Rs 39,950.17 crore of equities.
This festive season has seen 30-40 per cent growth in e-commerce volumes with overall growth similar to that witnessed last year.
A report by financial services major, Bernstein, said: “While not a negative surprise, we had anticipated a much higher growth for online sales this season given the Covid impact.”
This festive season has seen 30-40 per cent growth in e-commerce volumes with overall growth similar to that witnessed last year, the report said.
“This, in our view, either reflects unlocking ensuring a better than expected offline momentum or the impact of weak economy on overall festive demand. Our offline checks suggest a mixed read on festive trends with some categories seeing strength and some others still down year on year,” the report said.
Another interesting read was that there were no major supply constraints this season suggesting adequate channel re-stocking.
The just-concluded festive season in India was expected to have an increased dependence on e-commerce channels given the impact of Covid.
“Our analysis of consumer income and demand patterns over the past few months had suggested a better situation for Tier 3/4 geographies and e-commerce trends suggest a similar pattern,” the report said. While growth for e-commerce channel emerged from all geographies, Tier 3/4 outpaced Metro and Tier 1/2 with booking from these markets increasing to 60 per cent of mix vs 55 per cent last year.
Tier 1 and 2 mainly comprised existing shoppers who are buying more, while Tier 3 and 4 reflect new online shoppers.
Apparel (including footwear and sportswear) continues to be the largest category in e-commerce with consumer electronics (mobiles, laptops etc) being the No 2 category.
Categories which are gaining scale are grocery, home personal care and household goods. The widening of category choices from consumers also reflects the willingness of consumers to experiment, reflecting their trust on online platforms. Consumer durables have seen 165 per cent growth in volumes this festive season with almost all products (TV, AC, washing machine), witnessing a spike in growth.
Comfort on online shopping is increasing. Sharp reduction in return orders which declined by over 25 per cent, and is a good indicator of increased consumer engagement with the online platform and also reflects the quality of growth. Increasing trust on online payments as indicated by lower share of COD (cash on delivery) orders (55 per cent now vs 65 per cent pre-Covid). While COD as a mode of payment may remain relevant due to ease of use (Quicker checkout, consumer comfort on delivery timelines etc.) online payments should continue to gain ground, the report said.
The analysts interacted with the top management of Delhivery, India’s largest independent private e-commerce logistics company, to understand the consumption trends this season.
The Reserve Bank should let rupee appreciate to reduce imported inflation, a SBI Ecowrap report said on Wednesday.
According to the report, the US dollar is expected to remain weak due to fragile US economic conditions.
“It would do no harm for the RBI to lean with the wind and let the rupee appreciate which would reduce imported inflation when metal prices are rising, and clear the liquidity overhang to some extent,” it said.
“In fact, the large supply of dollars will ensure that rupee will not appreciate significantly from the current levels and this could potentially play to the advantage of the RBI even if it takes a hands off approach to rupee appreciation for the time being.”
As per the report, data from 1968 shows that dollar index has performed well under the Republican regime vis-a-vis Democratic regime and thus US election results have led to significantly improved capital inflows in emerging markets, including India.
In fact, India has already witnessed record inflows of $18 billion so far this fiscal.
“Interestingly, in the merchant market (in both spot and forward segment) there was an excess supply of $40 billion during Apr’20- Sep’20 (till 18th),” the report said.
“However in the interbank market, the trend is quite opposite and there has been excess demand of $27 billion in the same period and this must have increased significantly by now.”
Besides, the report pointed out that overall, merchant dollar supply is far higher than demand as they anticipate a stronger rupee and hence may be holding to long position in dollars, without even adequate hedging.
“This is being balanced by excess dollar demand in interbank market, but the net effect is a large supply of dollars,” the report said.
Restocking activity ahead of the festive season to satisfy pent-up demand had exaggerated the pace of improvement recorded by many lead economic indicators in October 2020, said ratings agency ICRA.
According to the agency, prominent base effects also muddied the trends in certain sectors, related to a later onset of the festive season in October 2020, relative to 2019, which has affected the number of working days and the concentration of festive sales.
Besides, the ratings agency said that available trends for early November 2020, suggested some moderation in spike during the ongoing month.
“We now expect a stronger rebound in economic activity in H2 FY2021, compared to our earlier assessment (-3.5 per cent),” said Aditi Nayar, Principal Economist, ICRA.
“However, we caution that the spikes in production seen in the various sectors in October 2020, are an exaggeration of the true recovery on the ground, as they have been driven by a large component of pent-up demand that may not sustain after the festive period is over.”
Furthermore, ICRA pointed out the potential re-imposition of restrictions in one or more states, on account of a fresh surge in Covid-19 infections, may temper the momentum of recovery in the coming months.
In ICRA’s set of 17 high frequency indicators, the YoY performance of 10 sectors recorded a pick-up in October 2020.
“This sub-set includes the sharp spikes in the output of automobiles and generation of GST e-way bills, as well as the relatively moderate improvements in electricity generation, ports cargo traffic, domestic airlines’ passenger traffic, as well as fuel consumption,” the ratings agecy said in a report.
“However, the YoY performance of six indicators deteriorated in October 2020, relative to the previous month, including the output of Coal India Limited (CIL), vehicle registrations and non-oil merchandise exports.”
In addition, the growth in non-food bank credit remained unchanged at a modest 5.1 per cent in YoY terms on October 23, in line with the growth recorded as on September 25.
“Five indicators continued to display a YoY contraction in October 2020, reinforcing the unevenness in the recovery that is playing out in the different sectors of the economy,” the report added.